CBRC eases loan curbs on lenders
Print Edition
China’s banking regulator relaxed lending curbs for commercial banks by adjusting the calculation method of the loan-to-deposit ratio to allow for more credit supply into the slowing economy.
Effective today, the relaxation will further enhance the regulations for banks to manage their liquidity while adhering to both domestic and international rules, such as Basel III, said the China Banking Regulatory Commission in an online statement yesterday.
The loan-to-deposit ratio is calculated by dividing the banks’ total loans by its total deposits, which is commonly used for assessing their liquidity to cover any future fund requirements.
The previous calculation counted deposits and loans not only in the yuan but also in foreign currencies. After the change, it will only involve deposits and loans in the yuan.
Six types of bank loans will be taken out of the numerator of the equation that calculates the loan-to-deposit ratio. They include refinancing loans for agriculture and small- and medium-sized enterprises, and loans extended to agriculture, rural areas, farmers and SMEs using funds raised from bank-issued financial bonds.
Two parts are added to the denominator of the equation — negotiable certificates of deposit issued to large corporations as well as individuals, and over one-year deposits received from overseas parent bank by the locally-incorporated foreign banks.
By the end of March, commercial banks on China’s mainland posted an average loan-to-deposit ratio of 65.9 percent, down 0.18 percentage points from the beginning of the year, which was also below the regulatory threshold of 75 percent, according to the CBRC.
Lu Zhengwei, chief economist at the Industrial Bank, said the Basel III liquidity rules are like substitutes for the loan-to-deposit ratio. Two of the implemented Basel III requirements are more comprehensive than China’s loan-to-deposit ratio.
Meanwhile, market observers expect more policies to be eased on top of the CBRC’s latest relaxation.
“We forecast two 25 basis-point cuts in benchmark interest rates in the third quarter and the fourth quarter. We also look for the People’s Bank of China to further loosen loan quotas and see limited upside in the yuan,” UK-based Barclays said.
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